Adding real estate to your investment portfolio can be an excellent way to generate strong returns and hedge against market downturns or inflation. If you’re not interested in purchasing and managing a property on your own, though, there are alternatives. Both REITs and platforms like Fundrise make real estate investing easier and more accessible to investors. However, while Fundrise may seem very similar to basic REITs, these two investment options have important differences to note. Here’s what you need to know.
With all the options you have to invest in real estate assets, it’s only makes sense to work with a financial advisor as you pick such securities.
What Is Fundrise?
Fundrise, which is a type of REIT, is an online platform that allows investors to purchase shares of real estate interests. Through Fundrise, investors are able to diversify their portfolio, adding low-cost real estate investments without the hassle of buying, renovating or managing those properties.
This also makes real estate investing possible for more people. Rather than requiring the full capital necessary to purchase a property, Fundrise has lower minimums that make real estate investing accessible to newer or lower-budget investors.
Fundrise operates as a crowdfunded business model. Investors purchase shares of preset portfolio strategies; their funds are then diversified across various funds within that strategy. Fundrise uses this capital to purchase, renovate, market and occupy a range of property types, while charging investors an annual advisory fee and a management fee.
Over time, the investment properties held within Fundrise’s portfolios may gain value and provide income. In turn, investors may see their own portfolio’s value grow, and may even receive quarterly dividends as a result.
How eREITs Work
One of the simplest ways for investors to add real estate to their portfolio is through a real estate investment trust, or REIT. Buying shares of a REIT is similar to buying shares of other investments such as mutual funds, exchange-traded funds (ETFs) or even individual stocks.
When investing through Fundrise, investors are purchasing shares of private equity REITs, or “eREITs,” which is a trademarked term. These investments provide capital for various residential and commercial real estate projects, offering investors a return on the property as it increases in value.
Equity REITs can be privately or publicly traded; in the case of Fundrise, their eREITs are open to all investors but are not traded on an exchange. There are no brokers and no sales commission for investors who buy eREITS; they are sold directly by Fundrise.
Fundrise vs. REIT Investing
“REIT” spelled out in block letters
Investing in REITs – especially publicly traded REITs – is a lucrative option for many investors. Not only do these investments traditionally perform well, but the majority of the time they even boast a higher return yield than the S&P 500. The eREITs offered through Fundrise are privately traded investments, however. This means that they may not boast the same returns or have the same benefits as public REITs purchased through a brokerage account.
With that said, Fundrise REITs usually cover a wide range of investment types. Because of this, they may help hedge against market downturns better than some specialized REITs or individual real estate purchases.
Which is Better?
So, between investing through Fundrise or investing in public REITs, which is better? Well, the difference will really depend on your goals and priorities as an investor.
Here’s a look at some of the important differences between the two REIT investment methods:
Fundrise offers low investmentminimums. To get started investing through Fundrise, investors are only required to make a minimum investment of $10. Other REITs may have significantly higher requirements – sometimes in the four- or five-figure range – especially when it comes to non-exchange traded or private REITs.
Fees may be higher with FundriseeREITs. Fundrise charges investors a total of 1% in annual fees. This includes a 0.15% advisory fee and a 0.85% asset management fee. The typical publicly traded REIT charges fees around 50 basis points, or 0.50%, annually. This makes Fundrise two times more expensive than public REITs, on average.
Private REITs don’t offer the same liquidity as publicREITs. Generally, REITs operate best as a long-term investment. However, if you ever need to liquidate public exchange-traded REITs, you can often do so fairly quickly through your brokerage platform. Fundrise REITs, however, are private and non-traded, which means that your shares could take much longer to sell.
The Fundrise platform can be simpler touse. There are many different REITs to choose from, but finding the one that works best for your goals and investment timeline can be tricky, depending on where and how you invest. Fundrise offers preset investment portfolios, enabling investors to pick the one that suits their goals. Any funds invested will be disbursed according to that portfolio’s allocation, without the need to shop around or do much digging.
All REITs are required by the IRS to pay out at least 90% of their taxable income to investors. These are disbursed in the form of dividends. While dividends (and overall returns) are never guaranteed, this requirement can make REITs an excellent choice for investors seeking passive income streams.
The Bottom Line
Two REIT investors
Standard REITs can be publicly traded, privately traded or public non-traded. Fundrise REITs are private, and thus may be somewhat illiquid, may be simpler for some investors and only require an initial investment of $10. Investors can just choose the preset portfolio that best matches their goals. Fundrise platform fees are 1% annually, which is higher than the average public REIT fee. While the Fundrise investment model is pretty simple, return yields may be lower than public REITs, depending on the portfolio you choose.
Tips for Investing
Consider working with a financial advisor as you weigh the pros and cons of various real estate assests. Finding a financial advisor doesn’t have to be hard. SmartAsset matching tool matches you, in just a few minutes, with professionals in your area. If you’re ready, get started now.
REITs can make a key part of your retirement nest egg. Planning for retirement requires knowing how much you’ll need to sustain your lifestyle once you’re done working. SmartAsset’s free retirement calculator can give you an idea of how much money you need to save.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
